In December, the country witnessed a boost in its foreign exchange (forex) reserves when compared to November. This uptick was attributed to a surge in foreign loans, remittances, and export earnings. Despite falling short of meeting the International Monetary Fund's (IMF) conditions in December, the reserves experienced a positive trend.
However, a fresh concern has emerged as we step into January – there is growing pressure on the reserves. Recent projections from the Bangladesh Bank indicate that this downward trend is anticipated to persist throughout the fiscal year.
As per IMF's mandatory condition at the end of December 2023, the net international reserves (NIR) needed to be at least $17.78 billion but the country fell short of the target by $58 million.
NIR is the difference between net asset and net liabilities. It is usually external assets that are held for precautionary and transactional purposes.
The Bangladesh Bank currently uses multiple reserve calculations for the country’s forex reserves: which include gross balance, and the IMF-prescribed balance of payment manual 6 (BPM6.)
Notably, the gross reserves encompass the Rooppur escrow account, encompassing funds for exporters and various domestic investments. These components, however, are not factored into the BPM6 calculation.
The NIR figures are sent to the IMF for scrunity, while the numbers are never made public.
According to Bangladesh Bank's latest report on January 18, 2024, as per the balance of payments and international investment position manual (BPM6), the country's reserve was $20.03 billion.
These reserves continue to dwindle despite non-payment of major external liabilities and a $1.36 billion remittance boost.
Data analysis says reserves stood at $21.80 billion on January 11 earlier this year.
In December 31, 2023, as per the central bank report, the gross reserve was $27.13 billion, which as per BPM6 was $21.86 billion.
In November, the reserve calculation was $24.89 billion and $19.30 billion respectively.
In December, IMF and World Bank loan reserves increased because of export and remittance flow.
Export Promotion Bureaus (EPBs) latest data showed that, from July-December of FY24 export earnings increased by 0.48% to $27.56 billion compared with those of $27.31 billion in the same period of FY23.
In November, the country's total export earnings were $4.78 billion while in December it increased to $5.3 billion.
On the other hand, in the July to December period of FY24, remittance inflow reached $10.79 billion compared with that of $10.49 billion in the same period in FY23.
Month-to-month, December remittance was $1.98 billion which was $1.93 billion in November.
Bankers said that the dollar holding by banks was not substantial enough to alleviate the ongoing dollar crisis in the financial market.
The Bangladesh Bank’s latest monetary report said it finds itself at a critical juncture as Bangladesh's economy navigates through the latter half of the fiscal year, facing a multifaceted economic landscape.
“Internally, the economy is striving to restore the stability of the exchange rate and manage the inflationary pressures while dealing with the lingering issue of high non-performing loans,” the monetary report said.
“The increasing costs of essential imports and the strain on the country's foreign exchange reserves add complexity to the domestic economic challenges,” the report stated.
Economists also said the crisis will be intensified as remittance and export earnings will slow down, while the inflow of foreign direct investment will also drop in the coming months.
Insiders said that the inflow of reserves may not rise, given the impending rise in LC openings in February and March, ahead of the holy month of Ramadan, when import bills of essential commodities will need to be repaid from the reserves.
Commercial banks
However, the volume of foreign currencies held by the country’s commercial banks dropped in December 2023.
Data analysis revealed that the gross foreign currency balance with the banks dropped to $5,559 million in December from $5,970 million in November.
The gross balance in December 2022 was $4,795 million.
This balance included nostro accounts and investments in offshore banking units of commercial banks.